TORONTO, Oct. 20, 2016 /CNW/ - Home Capital Group
Inc. (TSX: HCG) ("Home Capital" or "the Company") today made the
following statement on the anticipated impact of recently announced
changes to mortgage insurance rules by the Government of
Canada.
The Company anticipates that certain limitations placed by the
Government regarding eligibility criteria for low-ratio
government-backed insured mortgages could significantly reduce the
Company's ability to profitably originate and fund these mortgages.
Of the new criteria set out, low-ratio lending to rental properties
and for the purpose of refinancing will be most impacted under the
Company's "Accelerator" mortgage program. As a result, the Company
expects lower activity from these offerings.
Based on the information received to date and a preliminary
analysis of the business impact based on origination activity over
the last year, Home Capital expects these changes could result in a
decline of up to 60% in new "Accelerator" originations primarily
due to the Company's inability to purchase portfolio insurance as
part of its low-ratio "Accelerator" mortgage program. However,
since the "Accelerator" program has traditionally been a low margin
product offering, Home Capital anticipates the negative impact on
net income before tax to be relatively limited, approximately
$6.5 million and after tax net income
of approximately $4.8 million on an
annualized basis. This estimate assumes that the Company sells its
residual interest in fixed rate mortgages which is an activity that
the Company does from time to time.
"Like all mortgage lenders, we are still assessing the full
impact of the changes on borrower behaviour and the competitive
landscape," said Martin Reid,
President and Chief Executive Officer of Home Capital. "As the
effects become more clear, we will explore new business
opportunities created by this shift. We believe that Home
Capital's solid fundamentals, strong balance sheet and nimble,
entrepreneurial strategy leave us well positioned to take advantage
of any opportunities that result."
Additional details about the mortgage rule changes can be
accessed on the Government of Canada Department of Finance website
at https://www.fin.gc.ca/n16/data/16-117_2-eng.asp.
Home Capital does not intend to comment further prior to the
Company's regularly scheduled earnings conference call on
November 3, 2016.
Caution Regarding Forward-looking Statements
This press release contains forward-looking information within
the meaning of applicable Canadian securities legislation. Please
refer to the Home Capital's 2015 Annual Report, available on Home
Capital's website at www.homecapital.com, and on the Canadian
Securities Administrators' website at www.sedar.com, for Home
Capital's Caution Regarding Forward-looking Statements.
About Home Capital Group Inc.
Home Capital Group Inc. is a public company, traded on the Toronto
Stock Exchange (HCG), operating through its principal subsidiary,
Home Trust Company. Home Trust is a federally regulated trust
company offering residential and non-residential mortgage lending,
securitization of insured residential first mortgage products,
consumer lending and credit card services. In addition, Home Trust
offers deposits via brokers and financial planners, and through its
direct to consumer deposit brand, Oaken Financial. Home Trust also
conducts business through its wholly owned subsidiary, Home Bank.
Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British
Columbia, Nova Scotia,
Quebec and Manitoba.
SOURCE Home Capital Group Inc.